In used condominium investing, deciding which building age to choose is an important judgment from both a profitability and risk-management perspective. Because the purchase price is lower than for a new-build, gross yield tends to be higher, but the property still needs to be selected carefully from the standpoint of equipment deterioration, repair risk, and earthquake resistance.
What building age is suitable for a used condominium in real estate investment?
In investment practice, used condominiums that are around 20 years old are often considered optimal. There are two main reasons for this.
The necessary information for an investment decision is available
At around 20 years old, a property usually has enough information to evaluate how well it has been managed, including the history of major repairs, the status of reserve funds for repairs, and occupancy performance. With new or relatively new properties, decision-making information is often still limited. By checking the condition of common areas such as hallways, bicycle parking, garbage disposal areas, balconies, and exterior walls during a viewing, you can assess the quality of management. According to data from Japan's Ministry of Land, Infrastructure, Transport and Tourism, the lifespan of a properly managed reinforced-concrete condominium is estimated at 117 years.
Lower risk of price decline after purchase
New condominiums tend to see a sharp drop in price in the first several years after handover, but once a property reaches around 20 years old, price declines become more gradual. In Tokyo, depending on the location, there are even cases where the price per tsubo rises above the purchase price. For properties that appear to have found a price floor, downside risk at the time of sale is more limited, making it easier to design an exit strategy.
What should you watch for when buying an older used condominium?
Even with these advantages, the following three points should always be confirmed.
Check the degree of equipment deterioration
Properties that receive regular exterior painting, waterproofing, and equipment replacement are more likely to remain in good condition. Ask to see the repair plan and repair history, and verify that maintenance has been carried out systematically. If the building systems and equipment are aging, there is a risk that substantial investment will be required after purchase.
Check whether it meets the new earthquake-resistance standards (from June 1981 onward)
Properties built after the revision to earthquake-resistance standards in June 1981 are subject to the new standards. Whenever possible, choosing a property that meets the new earthquake-resistance standards provides greater reassurance for tenants and can also be favorable in loan screening. That said, even a property built under the old standards may still be worth considering if earthquake retrofitting has already been completed.
Check the repair plan and the level of reserve funds for repairs
Major repairs are generally estimated at around 1.0 to 1.2 million yen per unit, which would amount to roughly 50 to 60 million yen for a 50-unit condominium. Use the condominium association's documents to confirm whether reserve funds for repairs are being accumulated at an appropriate level. If reserves are insufficient, the risk of additional costs after purchase is high.
To evaluate the profitability of used condominium investing accurately, it is important to understand the relationship between rent-setting and asset value and, at the same time, develop decision criteria for avoiding overpaying.
Related reading
- Why rent-setting affects the sale price | How a 10,000-yen monthly difference can create 3 million yen in asset value
- Four essential rules for avoiding overpaying in real estate investment
- Is real estate investing difficult because it requires broad capability? Explaining the three barriers of tax, legal, and building expertise
Frequently Asked Questions (FAQ)
Q. How many more years can a 20-year-old used condominium remain in service?
A properly managed reinforced-concrete condominium may still have a remaining lifespan of 80 to 90 years or more. The repair plan, reserve fund level, and actual repair history are the biggest factors that determine longevity.
Q. Should used condominiums built under the old earthquake-resistance standards be avoided as investment targets?
Not necessarily. If seismic diagnosis and reinforcement work have already been completed, safety can be reasonably secured. However, because such properties may be at a disadvantage in loan screening, it is important to confirm the lender's position in advance.
Q. What is an appropriate level for reserve funds for repairs?
Under guidelines from Japan's Ministry of Land, Infrastructure, Transport and Tourism, a rough benchmark is at least 200 yen per square meter per month per unit. However, this varies depending on the scale, structure, and location of the property, so it should always be judged against the long-term repair plan.
Q. What is the exit strategy if you buy a 20-year-old condominium for investment purposes?
The main exit options are 1) continuing to rent it out for stable income, 2) selling it when the building reaches around 35 to 40 years old, and 3) selling or re-leasing it after increasing value through renovation. The best timing should be determined based on location, repair condition, and market trends.
Q. What is the typical brokerage fee when buying a used condominium?
The legal maximum is 3% of the sale price plus 60,000 yen (excluding tax). Some brokers, however, may offer discounts. Be sure to include this in the overall estimate of acquisition costs.
